More Power for a Few Major Players – Jurist Tobias Lettl studies power concentrations in the market

Prof. Dr. Tobias Lettl. Photo: Karla Fritze.

Fruit and vegetables, bread, or milk products – there’s no question that we all need food every day. And there is also little doubt about where we buy our food, one could say somewhat provocatively, as there is little choice when it comes to supermarkets in Germany. While in the 1990s, eight large retail chains made up a 70% market share, only five of them remain – Edeka, Rewe, Aldi, the Schwarz Group (owners of Kaufland and Lidl), and Metro AG (Real) – and these five control 90% of the market. “The economic power of large companies continues to rise,” says Tobias Lettl, Professor of Civil Law, Trade and Commercial Law at the University of Potsdam. On behalf of the independent aid organization Oxfam, he drew up an expert opinion on the concentration of market power. It revealed that it is becoming increasingly difficult for the Federal Cartel Office to limit big corporations, which has consequences for the freedom of competition – and for all of us.

In 2017, Edeka acquired a large part of the Kaiser’s Tengelmann supermarket chain, which had been in the red for years despite the Federal Cartel Office prohibiting the merger. With a market share of some 26%, Edeka was already the leading food retailer. “But Section 42 of the Act against Restraints of Competition (GWB) grants the Federal Minister for Economic Affairs the right to permit a merger even if it violates antitrust legislation,” Lettl explains, as long as the fusion benefits the economy as a whole. Sigmar Gabriel, who was Minister at the time, exercised this right. His main argument was that the 16,000 jobs at Kaiser’s Tengelmann should not be lost. “This disputed decision was later reversed by the Düsseldorf Higher Regional Court for a number of reasons, in particular because it had not been examined whether the merger itself would result in job cuts,” Lettl says. Ultimately, though the merger took place on condition that Edeka not take over Kaiser’s supermarkets alone, but rather shared them with Rewe – another major player.

Large corporations dictate prices

Such decisions, however, jeopardize the freedom of competition. After all, the large market share of retail chains puts them in a position to exert pressure on suppliers to, for instance, lower delivery prices or grant other special conditions. In most cases, the suppliers cannot switch to alternative buyers, since their losses would be too high. This price pressure forces many suppliers and especially small agricultural businesses out of the market, but also keeps food prices relatively low in Germany. Cheaper food, though, sometimes also means lower quality, lower wages, and poorer production conditions, also at the expense of animal welfare. “This entire chain is largely ignored when a ministerial authorization is granted,” Lettl says. He, therefore, is critical of ministerial authorizations. “All antitrust law can be counteracted by the decision of just one minister. From my point of view, Section 42 of the GWB does not have sufficient democratic legitimacy.” Lettl thinks that only the legislature itself may permit a merger that in fact violates antitrust legislation.

In a free market economy, prices are often agreed upon through tough negotiations, and rightly so, the lawyer finds. Yet abuses need to be brought to light. An impressive example of such an abuse is addressed in the Federal Court decision regarding so-called wedding rebates: Edeka had forced a sparkling wine producer to contribute to the modernization costs of some of its outlets. The Federal Cartel Office ended this with a ruling on abusive practices. In January 2018, the Federal Court confirmed this ruling against Edeka, while also settling some fundamental questions. Now the 9th Amendment of the Competition Law stipulates – more stringently than before – that companies are not allowed to be granted advantages from other companies such as trading partners without an objective reason. Lettl, who has discussed the ruling in some of his articles, was repeatedly quoted by the Federal Court of Justice in its decision – high praise for the lawyer.

“Data are the new oil”

In the digital industry, too, some corporations can almost be seen as monopolists. Technology giant Google offers numerous products such as the Android operating system, the Chrome web browser, and the Gmail email service. Google is, thus, not only a major player but also owns huge amounts of data. The EU Commission recently fined Google € 2.4 billion for breaching EU antitrust rules: With Google Shopping, the corporation operates its own comparison shopping service, which prominently placed its comparisons in search results, demoting rival ones. “This is an abuse of a dominant position in the market,” Lettl explains. “Even though Google is so economically strong, this fine will hurt.”

The situation is very similar with Facebook: 2.2 billion people worldwide are active on this social network. In 2014, Facebook acquired the WhatsApp messaging service and its 1.5 billion users as well as Instagram, on which 800 million people share their photographs every month. This is big business – if it comes to the worst, also with all of these users’ personal data. “The larger the economic power of a corporation, the higher the risk of an abuse of power,” Lettl knows. “We saw this recently in the Facebook-Cambridge Analytica data scandal.” Unlawfully, personally identifiable user data had been made available to the now-insolvent data analytics company, which was also later hired by the Trump campaign. Some 87 million people may have been affected.

“Today, data are the new oil,” Lettl explains. “Those who possess people’s personal data have a major advantage in the competition for customers.” Everywhere on the internet, users are requested to enter their address data. Private photographs and texts shared on social networks reveal our interests, shopping behavior, and political convictions. We are hardly capable, however, of imagining the ways our data are being used. But there is some hope: In May 2018, a new General Data Protection Regulation (GDPR) went into effect in the European Union. However, with its loose phrasing, it opens up too many possibilities for EU member states to set their own rules, Lettl thinks. “In European-level regulations, the challenge is often for all member states to agree on a legal text without watering down its purpose –protecting personal data.” Whether the new regulation will be able to achieve its objective remains to be seen.

Consumers also have control over the markets

“Economic power needs limits and control,” Lettl says. In his expert opinion on power concentration in the markets, he therefore also recommends that the legislature should “unbundle” major corporations into smaller units as a last-resort measure. The United Kingdom and the US already have antitrust unbundling rules. “To be sure, such rules would be a constitutional challenge, since they affect property which is protected.” However, if applied in exceptional cases only, Lettl thinks unbundling can be a meaningful instrument – if for no other reason than its deterrent effect on corporations.

As a lawyer, Lettl focuses primarily on legislation. “Yet these concentration processes cannot be regulated by legislation alone.” Even though Lettl is convinced that company mergers could be warded off by stronger regulations on merger control adopted by the legislature, or by restrictions imposed by the Federal Cartel Office, he is quite certain that consumers have the greatest opportunity to exert influence. “If half of Facebook users – over a billion people – threatened to quit, the company would be placed under intense pressure to react.” Lettl is under the impression that many people are indifferent to data misuse. “My personal experience is that young people tend to say: I don’t have any secrets; I feel no consequences when my data are traded in secret.” In food retail, too, Lettl sees customers as the ones who can make a difference. If they are willing to spend more money on food and buy not only from major players, they will be able to redress this power imbalance. “But in recent years, consumers have hardly done this, despite Germany being one of the richest countries in the European Union and food prices being comparatively low because of pricing pressure.”

Lettl intends to keep an eye on the concentration of market power. Next, he will act as a consultant in a legislative procedure at the European level, where the Economic and Social Committee of the European Commission is planning to decree new regulations to combat unfair trade practices between food retailers. Lettl is very much looking forward to this task. “As a researcher, I will be an impartial observer mainly, since I do not have to represent any political or economic interests. This is a great privilege.”

THE RESEARCHER

Prof. Dr. Tobias Lettl studied law. He has been Professor of Civil Law, Trade and Commercial Law at the University of Potsdam since 2004.lettl@uni-potsdam.nomorespam.de